Why the global insurance industry is wrong

Insurance is the transfer of risk of loss from one entity to another in exchange for a payment. An individual (usually the principal breadwinner) uses a life insurance policy as a means to compensate the loss of his income to his family in case he has an untimely death. Insurance in India is sold with the disclaimer: insurance is a subject matter of solicitation. This means that an insurance cover needs to be asked for by the customer and not sold. An individual feels the need for an insurance cover and then finds an agent to sell him a product. Not unlike a loaf of bread—you feel the need to buy, you buy from a convenient location and pay a small sales commission embedded in the price of bread towards the work done by the retailer to make the bread available.

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Sebi’s anti-competition hike

In what can only be termed as an anti-competition decision, the board of the Securities and Exchange Board of India (Sebi) on 13 February made it difficult for small mutual funds (MFs) to do business in India. Some of the best innovations in the MF industry have come from the smaller funds, but that seems to not matter to the regulator. The Sebi press release couches the decision as follows: “In the long run, the objective is to ensure that mutual funds achieve reasonable size and play an important role in the objective of financial inclusion while further enhancing transparency so that investors can take informed decisions.” Eight points have been listed to meet these goals. Of the eight, five decisions are within Sebi’s powers, and the remaining three proposals are for the government and the banks. One of the five decisions aimed at increasing financial inclusion and transparency is raising the minimum net worth of an asset management company (AMC) from the current Rs.10 crore to Rs.50 crore. How a larger net worth of a fund house will lead to either financial inclusion or more transparency has not been made clear.

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Dhan Chakra or the life cycle of your money box

Last week, Mint completed a full year of the weekly personal finance show Smart Money on Bloomberg TV India, which I co-anchor with Vivek Law. Viewers of the show and readers of this column will be familiar by now with the concept of a money box—or the box that contains your financial life and tells the story of your financial health. We’ve worked to establish that each product in the box has a role and must justify its place in the money box. We’ve tried to create boxes that reduce risks and increase long-term wealth creation. It is time now to take a step back and look at the money box in the context of the life cycle of a person’s money life. Veteran readers of this column may remember me writing about the Dhan Chakra concept five years ago, but I think it’s worth revisiting it now and linking the circle of wealth to the life cycle of a money box.

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Regulators need to be more Captain Kirk than Mr Spock

Over the past one year, I’ve spoken to various groups of people in the policymaking and regulatory space on consumer protection in the financial sector. Some have been the staff of regulators, other groups comprised bureaucrats in departments that engage with the regulators. Last week, it was a large group of banking ombudsmen, bank customer relations officials and banking regulator’s customer-facing staff at the Reserve Bank of India (RBI). My attempt in these conversations is to move from finger pointing and name calling using individual experiences of consumer distress to a larger perspective where we try and solve some core issues

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